Business Times

SL budget deficit mostly due to interest bill - IMF Rep

Sri Lanka's budget deficit is mostly due to the country's interest bill, according to Dr. Koshy Mathai, the International Monetary Fund Resident Representative to Sri Lanka and the Maldives. Last year, the country's budget deficit increased to 9.7% of Gross Domestic Product (GDP), a figure that exceeded, by 2.7%, the government's expected deficit of 7% of GDP.

During his presentation titled "Fiscal Sustainability for our Time" at the Central Bank-affiliated Centre for Banking Studies in Rajagiriya, Dr. Mathai also noted that the debt to GDP ratio for Sri Lanka had further increased over the last year from 81% to 85%. He also added that it was time for the Sri Lankan government to consider some hard decisions and suggested these be in areas such as cutting costs associated with what was said to be an overly large cabinet as well as even cutting defense spending and overall waste. He also suggested more sustainable and sensible revenue enhancement would help.


Dr. Koshy Mathai

Dr. Mathai additionally highlighted the need to control excess in state-owned enterprises and also warned against the dangers of public sector borrowing, especially when it was potentially harmful to private sector borrowing capability. He also suggested that the public sector should attempt more savings to ease its burden on the overall budget.

Meanwhile, according to Dr. Mathai, increases in inflation were to be expected and were due to natural causes such as escalating prices of oil, etc. He also mentioned that the Sri Lankan government recognised that the country’s tax system was unnaturally complicated.

Regarding the IMF’s US$ 2.6 billion loan to Sri Lanka, of which two tranches of approximately US$ 325 million each have already been disbursed while the third had been put on hold pending the reading of the 2010 budget; he indicated that the decision to put the third tranche on hold had been a mutually agreed one by all.

However, he did note that the track record of the Sri Lankan government in keeping to targets thus far had been positive; except with regard to their fiscal targets for December, saying July and September targets had been largely met and remittances had been strong while December targets had been met except for the fiscal. He also indicated that the previous level of one billion in gross reserves had increased to its current level of US$ 5 billion.

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SL budget deficit mostly due to interest bill - IMF Rep

 

 
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